Crude oil at crossroad
Within weeks, the crude oil narrative has shifted from deficit fears to renewed concerns over a potential glut. With the Strait of Hormuz reopened, war-risk premia unwinding, and OPEC discipline weakening, the market’s focus for H2 2026 has moved from upside spikes to downside risk.
Brent, which surged to $126/bbl on 30 April during peak war risk, eased to nearly $100/bbl in May as demand destruction emerged. In June, the correction deepened, with prices falling almost 30 per cent in two weeks to around $73/bbl as of 30 June, reflecting supply normalization and fragile demand recovery.
Geopolitics: From Conflict to Normalization
The US-Iran de-escalation framework has held through June, with verification mechanisms around enrichment capping headline risk. Hormuz traffic has normalized to near pre-conflict throughput with 16-18 mbpd crude oil passing through the channel, and war-risk insurance surcharges on VLCCs transiting the strait have compressed sharply from their February-March peaks.
But the conflict in the zone is unlikely to get resolved easily as Iran is working on to take control of the Strait and route is still not a 100 per cent safe as pre-war level. Any signal that Iranian compliance is faltering would reprice the geopolitical premium back into the curve quickly.
Supply Dynamics: The Return Flood
Iran’s return is the swing factor. Chinese autonomous refiners are re-establishing direct term contracts, and the pace of reintegration — roughly 150–200 kb/d of incremental exports per month, suggests full pre-sanctions volumes by Q1 2027 rather than an immediate flood, which tempers the bear case somewhat, while Iraq is planning to raise its capacity to 7 mbpd in coming years.
OPEC Fragmentation: The UAE Exit and the End of Discipline
The biggest setback of war is the UAE’s formal exit from OPEC quota arrangements marks the most consequential structural shift in the producer group since 2016. Abu Dhabi’s move to pursue unconstrained volume growth — leveraging its lower-cost barrel and expanded Murban capacity — has effectively ended the credibility of the remaining quota system.
The implications cascade quickly
We believe this exit of UAE would make Saudi bear the consequences as Kingpin of OPEC it faces a binary choice between absorbing share loss or re-entering a volume war and early signaling points toward the latter – Nigeria and Angola, already chronic quota under-compliers, now have political cover to pursue maximum output.
To gain market share we are already seeing many of the producers like UAE Saudi and Iraq have reduced their official selling prices for the benchmark grade oil, which is structurally bearish for any sustained price floor.
Non-OPEC Supply: Shale’s Resilience
US shale has not responded to the price correction with the production discipline expected. Permian output has held within 2 per cent of pre-correction levels through June, Brazil, Guyana, and Canadian oil sands continue ramping on pre-committed capex cycles, largely insulated from near-term price signals. Combined non-OPEC growth of roughly 1.2–1.5 mb/d through year-end is compounding, the OPEC-side return flood.
Demand: A Partial, Lagging Recovery
Brent declined 35 per cent in last three months and 30 per cent of the slide coming in June has not yet been reflected in demand, which remains inelastic and full recovery will show up over two to three quarters.
India’s refining throughput has picked up an estimated 3–4 per cent month-on-month as discretionary buying resumes at lower landed costs, while strategic stockpiling has added incremental barrels to import demand.
China’s independent “teapot” refiners have similarly increased run rates by an estimated 4–6 percentage points, taking advantage of the price dip ahead of potential re-tightening. We see net global demand recovery is estimated at 0.6–1 mb/d through Q3, insufficient to absorb the 1.8–2.3 mb/d of incremental OPEC supply alone.
Macro development
Chinese official Manufacturing PMI for June indicates expansion at 50.3, Eurozone retails sales advanced at 1.1 per cent in May, the inflation in Eurozone in China and India eased, with oil prices falling sharply we see industrial and manufacturing activities are expected to observe expansionary phase in H2-2026 that would stabiles crude oil prices towards the current trading range of $70-75/b.
Price Outlook
The base case currently carries the highest probability weighting given confirmed supply trajectories and the absence of a credible OPEC+ coordination mechanism.
Market Balance: Structural Glut
OECD inventories, which fell by roughly 600–700 million barrels during March-June, are likely to see replenishment demand over the next six months, especially as the US SPR remains near 331 million barrels, its lowest level since 1984.
However, this restocking cushion may not be enough to offset the broader supply overhang. Returning Gulf barrels, resilient shale output, and a fragmented OPEC structure point toward structural oversupply into 2027. We expect global supply to reach 103.5 mbpd by end-2026, against demand recovery of around 102.7 mbpd.
Key risks to monitor
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OPEC+ discipline breakdown beyond the UAE precedent Saudi abandoning defense entirely -
Faster Iranian ramp-up- if sanctions relief accelerates beyond 60 days peace period -
Weaker-than-modeled EM demand, particularly if China’s property-linked industrial demand stays soft and key Asian region showing a strong transition towards EV segment could be negative for oil demand
Conclusion: Strategic Positioning
Our directional view is bearish-to-neutral on Brent through H22026, with a base-case range of $68–72/bbl. The geopolitical de-risking that drove the June correction is largely complete; the marginal driver for price now is supply discipline. Near-term triggers to watch: UAE production data releases, Iranian export tracking via tanker AIS data, and any Saudi rhetoric signaling a shift from “stabilizer” to share-defender.” (Disclaimer: This article is by Mohammed Imran, research analyst, Mirae Asset Sharekhan. Views expressed are his own.)
